UP trims power allocation, projects higher revenue target to accommodate farm loan waivers

Nearly a week ago, the Uttar Pradesh government revealed the State Budget which stated that the government will able to provide loan waivers to small and marginal farmers.

Nearly a week ago, the Uttar Pradesh government unveiled the State Budget which stated the government will able to provide loan waivers to small and marginal farmers despite a ‘cash-short administration’.

The planned Budget accommodated not only loan waivers but also managed to keep its fiscal deficit under 3 percent of the state’s GDP. It shows that revenue surplus will continue, even though a surplus lower than the earlier FY is budgeted. The fall in the surplus is from Rs 24,506 crore (FY17) to Rs 12,279 crore (FY18).

According to a Business Standard report, the government rejigged its funds by cutting its power allocation to Rs 17,728 crore in FY18 from Rs 34,602 crore in FY17, (revised estimates or RE). The Rs 16,800 crore balance was for raising the revenue target for FY18 by 7 percent. The interim Budget estimated total revenue receipts at Rs 3 lakh crore (FY18) – an 11.4 percent increase from Rs 2.69 lakh crore in FY17 (RE).

The total revenue receipts targeted this FY is at Rs 3.19 lakh crore, higher than the previous budget. This will help the government to get an additional Rs 19,300 crore.

The two adjustments have given the UP government a fiscal space to waive of loans totaling Rs 36,000 crore. The rearrangement was done by the agriculture department.

No capital expenditure was cut.  The total CapEx is set at Rs 77,541 crore in FY18, which is insignificantly above the Rs 76,178 crore in the interim Budget.

Farm loan waivers, however, are not the cause of a fall in the capital spending. The interim Budget accounted the CapEx cuts to bring down the increasing fiscal deficit.

Experts are doubtful of the increase in revenue in FY18. The non-tax revenue, which was earlier forecasted to grow 3 percent, is now at 13 percent. In order to attain this growth, the state government showed grants from the Centre.

“It is unclear whether the sharp increase in grants from the Centre in the Budget estimates would materialise, in light of the relatively modest growth budgeted by the Government of India in aggregate grants to all states,” says an expert.

The tax revenue collections increased by 12 percent in FY17, where the interim Budget estimated a 14.7 percent growth of 14.7 in FY18.

An overall growth of 20.8 percent in the state is expected. According to PRS Legislative Research, a major part of the growth is expected out of sales tax, the goods and services tax revenue amounting a 26 percent growth in FY18.

The state government documents specify that the farm loan waivers will be applicable to small farmers (land less than two hectares) and marginal farmers (less than one hectare).

The state will also cover rescheduled loans due to natural calamities. However, crop loans by self-help groups, microfinance institutions and urban cooperative banks, term loans, and money withdrawn via the Kisan Credit Card will not taken into account for loan waiver. For the purpose of calculating the loan amount, the dues (including interest) as on end-March 2016 would be reduced by repayments received during FY17, without taking into account the money withdrawn by the farmer or new sanctions during FY17.

For calculating loans, the dues (including interest) as on end-March 2016 will be cut by repayments received during FY17. The calculation will not include the money withdrawn by the farmer or new sanctions during FY17.

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